Suddenly, the monthly BofA fundies survey is like rereading MB Fund output for the past three months:
Bottom line: investors much less bullish on growth, profits &yield curve steepening, have unwound junk>quality, small>large, value>growth trades back to Oct’20 levels (pre-vaccine/election), but maintain big longs in stocks (back to tech) & commodities.
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Cyclical“boom” has peaked: July growth expectations @ 47%, down from 91% peakinMar’21; global GDP & EPS readings show macro momentum weakest since Q3’20.
Fiscal optimism fading: FMS expectation for US infrastructure stimulus down to$1.4tn (was $1.9tn in Apr’21); investors predicting higher inflation @ 22% (was 93% inApril); expectations for steeper yield curve @ 2-year lows (Chart 1) despite FMS investors pushing back 1st Fed hike from Nov’22to Jan’23.
July AA unchanged: FMS cash levels up a tad from 3.9% to 4.1%, but allocators retain big OW’s in commodities & stocks, big UW in bonds, best explained by consensus view that 1. max uncertainty on macro/market = slow QE tapering= TINA (there is noalternative), 2. inflation =“transitory”tail risk, 3. COVID despite Delta varianta distant#5“tail risk”in July FMS.
Up-in-tech, down-in-EM: long tech #1 most crowded trade (1sttime since Apr’21); tech exposure up in July but rotation from cyclicals (banks, resources) v modest & defensives(utilities, staples) completely shunned; Europe remains big #1 regional long, US OW up but China fears saw FMS investors cut EM equity positions sharply.
Where reflation was unwound: while stock, commodity & sector positions show little unwind of reflation trade, relative positioning in junk vs quality, small vs large, value vs growth slumped to lowest since Oct’20; any resumption of reflation trade via China ease,US infrastructure stimulus, yield curve steepening likely to be seen in these trades first.
Contrarian trades: 1. yield curve steeper & small cap>tech if inflation surprises to upside; 2. short stocks if Fed rate hikes in ’22 get priced-in (just 3% expect bear market next 6 months); 3. bonds>commodities, utilities>banks if growth surprises to downside.
I never like being aligned with this survey for too long given it means you’re with consensus. But there is one chart that gives me confidence that the great unwind of the China boomlet, global inventory supercycle and commodities bust has further to run. Nobody is out of the trade yet!